Using insurance to help protect intellectual property

There are costs for companies to pursue intellectual property infringement – so what role for liability insurers in helping their customers protect IP?

When you think of liability insurance, you usually consider malpractice or accidental injury and loss. Rarely do we think about the commercial implications of copyright infringement, or bad actors stealing a company’s IP and abusing their patents.

But this is a growing area of liability insurance, and one that businesses with strong IP must be aware of. To dive deeper into this topic, we spoke to Jim Gastle, Canadian patent agent and co-founder of Terrifio, a suite of tools for IP professionals; as well as Grant Peters of Barnes and Thornburg.

What are the insurance implications of patents and IP?

Intellectual Property (IP) continues to grow as a mission=critical strategic asset. Historically, the insurance industry covered some ‘advertising injury’-related IP issues under comprehensive general liability (CGL) policies, though insurers continue to narrow such coverage. Seeing a need for IP coverage, the insurance industry responded with IP-specific insurance products to cover costs arising from asserting IP rights against infringers, as well as costs for defending against allegations of infringement.

For patent coverage, the underwriter identifies each patent, in some cases a listing of its distinctive features of the patents, presumably to attach a higher insurability value with broader claim scope to manage coverage exposure. Such policies also include declarations to title and any history of prior enforcement activities.

However, we believe the underwriting process is missing cases where a patent owner has a compliant virtual patent marking (VPM) programme (or ‘webmarking’ in the UK), which strengthens the assertive or defensive posture of the patent in events that trigger an insurance claim. We believe that VPM is a blind spot for many patent owners and others in the IP ecosystem, and suggest that the insurance industry take notice immediately, particularly for policies covering enforcement proceedings in the United States.

Title 35 U.S.C. § 287 of the US patent statute enables patent owners to post a list of patents associated with each patented article sold, offered for sale, or imported into the United States (the ‘VPM List’). Marking patented articles with “pat.” followed by a web address takes the public to a VPM webpage where the VPM List is posted. Such marking gives the public “constructive notice” of the patents on the VPM List, provided certain compliance requirements are met.

What can Terrifio do here to help?

Terrifio’s digital tool, Markr, is purpose-built to alleviate the setup and ongoing administrative burden associated with maintaining VPM compliance. Markr enables patent owners to efficiently manage their patent applications, issued patents and products, simplifying critical workflows to allow users to export VPM-compliant PDFs or update their VPM webpage in real-time.

Appreciating constructive notice starts with understanding ‘actual notice’, which is achieved by filing a complaint against or sending a suitable cease-and-desist letter to a patent infringer. Damages are only being calculated from the date of actual notice.

In strong contrast, a VPM programme can establish constructive notice as early as the date that the patent and associated article first appear on the VPM List. Damages are calculated to include up to a six-year period prior to actual notice. The quanta of US patent infringement damages awards, some now approaching many tens of millions of dollars or more, can speak for themselves. 

The value of VPM extends beyond US litigation, since a prospective licensee can be persuaded of the value in a higher licensing rate, under a robust and auditable VPM-backed patent portfolio.

Thus, a compliant VPM programme presents a wide avenue to amplify value, expand opportunities, and fortify the patents under consideration in the IP insurance underwriting process. 

How can VPM contribute to resolving cases?

Since IP insurance covers legal costs associated with both assertive and defensive activities, let’s consider each. VPM can significantly strengthen an assertive posture and thus settlement leverage, shortening the time it takes for cases to be resolved, and in which case should significantly reduce payouts by the insurance provider.

Similarly, a VPM-compliant policyholder in a defensive scenario may be able to rely on an early constructive notice on a patent, especially if the patent scope provides the basis for a counterclaim against an assertive third party. In that case, the VPM programme should at least reduce, if not neutralise, the quantum of settlement by the policyholder, and once again a reduced payout by the insurance provider. 

According to industry leader AON, insurance underwriters “work with organisations of all sizes to maximise the value of their IP – helping assess and mitigate risk, align with business strategy and capitalise on investments.”

We believe constructive notice provided by a VPM programme should be part of the IP insurance industry’s risk management strategy.


For more insights from InsurTech Digital, you can see our latest edition of InsurTech Digital here, or you can follow us on LinkedIn and Twitter.

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